Shohei Ohtani’s groundbreaking 10-year, $700 million contract involves an unprecedented deferral structure, according to a source familiar with the details reported by The Athletic on Monday.
In a strategic move aimed at supporting the Los Angeles Dodgers in maintaining a competitive roster with stars like Ohtani, Mookie Betts, and Freddie Freeman, Ohtani has agreed to defer all but $2 million of his annual salary, totaling $68 million of his $70 million per year. These deferred payments will be disbursed without interest from 2034 to 2043.
The previously undisclosed deferrals were reportedly proposed by Ohtani himself during negotiations, contributing to the contract reaching the landmark $700 million figure. The deal is expected to be officially confirmed soon.
This innovative structure is designed to provide the Dodgers with increased cash flow and flexibility in managing their payroll. Meanwhile, Ohtani continues to generate substantial income from endorsements and off-field ventures, estimated at $50 million annually, according to the source.
The deferrals also offer the Dodgers added leeway in navigating the competitive balance tax, or luxury tax. For luxury tax purposes, the anticipated average annual value of the contract is approximately $46 million per year, as disclosed by individuals briefed on the terms. This $46 million average annual value surpasses the previous record set by Max Scherzer, who received a $43.3 million average annual value in his three-year deal with the New York Mets in 2021.
According to the collective bargaining agreement in baseball, there is no limit on the amount of salary that can be deferred by a player and team. The CBA also incorporates a net-present-value calculation for luxury-tax considerations, estimating the contract’s value on a season-by-season basis. This calculation results in the $46 million figure.
Over the ten years Ohtani is set to play for the Dodgers, the deal can be viewed as having an average annual value of $46 million. However, spanning the entire 20-year duration of the contract, including the subsequent 10 years when the deferred payments are scheduled, Ohtani’s total earnings will reach $700 million.
The payments will be evenly distributed throughout the two 10-year periods, with Ohtani receiving $2 million annually from 2024 to 2033 and $68 million annually from 2034 to 2043.
